Suppose you are committed to owning a $160,000 Ferrari. Required: If you believe

Question

Suppose you are committed to owning a $160,000 Ferrari.

Required: If you believe your mutual fund can achieve a 10.25 percent annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?

You have just received notification that you have won the $2.07 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 73 years from now.

What is the present value of your windfall if the appropriate discount rate is 11 percent?

You have just received notification that you have won the $2.07 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 73 years from now.

Explanation / Answer

1)

Future value = P×(1+r)^n

P is payment

r is interest rate per period

n is number of periods

$160,000 = P×(1+10.25%)^10

Investment required, P = $60,302.31

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.